The proposed scheme by the Ministry of Finance to raise the environment tax on fuels from this July has been stiffly objected from far and wide, with many experts questioning the ministry’s wisdom in spurring State budget revenue disguised under the environmental cause. Under a draft Government resolution passed around by the ministry for public comment, the tax sum will rise to VND4,000 per liter of petrol from the current VND3,000, while the additional sums on other fuels range from VND500 to VND1,100 a liter.

As widely covered in local media in the past several days, such a proposal is wrongly purported, as the underlying target is to replenish the State budget rather than to remedy the environment harmed by the use of fuels. The ministry’s approach, say experts, might also result in adverse impacts on business and people’s livelihoods.

As stated by the ministry, as import tariffs on fuels have been falling, the additional tax is meant to offset the shortfall. If the additional tax sum is approved, the State budget each year will have an additional VND15.7 trillion, which will allow for an increase in State budget allocations for environmental protection plans.

Such a proposal, says Nguoi Lao Dong, lacks transparency. “There are many issues that must be made transparent surrounding this proposal,” says the paper. It stresses that with VND3,000 slapped on each liter of petrol sold, the State budget has been collecting tens of trillions of Vietnam dong each year for the cause.

In fact, revenues for the State budget from the environment tax have been steeply increasing over the years, from VND11.97 trillion in 2014 and VND27.02 trillion in 2015 to VND44.32 trillion in 2016 and VND44.82 trillion last year. Meanwhile, the total budget allocations for environment projects nationwide in the 2012-2016 period amounted to VND132 trillion, averaging out at VND26 trillion a year.

Criticizing the proposal, Le Dang Doanh, a veteran economist, says in the business news website theleader.vn that the Finance Ministry refers to a higher environment tax as an excuse only, since just a small proportion of the revenue is spent on the environment. “The Ministry of Finance should give a clear explanation on this issue.”

Citing the Finance Ministry’s proposal, the news website estimates that the total revenue from the environment tax on fuels will be some VND57.31 trillion, rising by an additional VND15.68 trillion. Apart from this tax sum, the value added tax on fuels will also increase by nearly VND1.57 trillion, meaning the total additional revenue for the State budget from this proposed tax hike would be VND17.25 trillion a year. Citing Le Dang Doanh, theleader.vn says pricing will see a domino effect, as transport costs would also be higher, sending prices of all commodities soaring.

“Such a scenario will have adverse impacts on the people, especially low-income earners,” the economist is quoted as saying.

Echoing the argument, Ngo Tri Long, an expert on pricing, says in Hanoi Moi Online that before putting forth the proposal, authorities should anticipate its consequences. “Fuels are an important input for the economy. A higher environment tax on fuels will drive up prices of various other commodities, including materials, which will erode the competitiveness of producers,” Long says in the news site. Citing the Prime Minister’s recent pledge not to hike taxes and fees this year, the expert suggests that authorities refrain from raising the environment tax.

More bluntly, Huynh The Du of Fulbright University Vietnam says in Dan Tri that the higher environment tax on fuels is not meant to protect the environment. “Raising the environment tax at this time prompts the public to comprehend that the budget spending is not effective,” he is quoted as saying.

The news site Thoi bao Ngan hang suggests that the Finance Ministry seems not to have predicted the consequences, especially the influences on inflation and interest rates. In January, when fuel prices were revised up twice, the consumer price index for this commodity group rose 2.65%, adding 0.11% to the overall inflation. Dinh The Hien, an economic expert, says on Thoi bao Ngan hang that if the people have to pay an additional VND15.7 trillion in environment tax, they would have to tighten spending, leading to cash scarcity to some extent, and banks would have to raise the borrowing rate to attract more deposits.

On the same news site, Ngo Tri Long says that Vietnam has been able to contain inflation owing to the low fuel price, and as the inflation target is set at below 4% for this year, it will be a daunting task since the January CPI already hit 0.51%.

Experts also double down on the problematic budget spending, saying efforts should be taken to make the State budget expenditures more effective, instead of raising taxes.

Economist Le Dang Doanh says on theleader.vn that public investment by the State is still loosely controlled, leading to wastefulness. The Ministry of Finance should reform its budget spending management instead of raising taxes to offset the budget shortfall, Doanh stresses.

On news website Dan Tri, economic lecturer Huynh The Du says any plan to raise the environment tax on fuels will meet with tough resistance from the public as “the people have already been burdened with taxes and fees.”

In 2016, says Du, Vietnam’s budget revenue as a percentage of gross domestic product rose to 22.5%, much higher than in Singapore, Thailand, Indonesia, Hong Kong, South Korea, the Philippines and China, while its budget spending amounted to 28.3% of GDP, also higher than all the above-listed economies, says the lecturer.

The biggest budgetary problem in Vietnam as pointed out by experts is the ineffective budget spending, Du asserts.

In a commentary, Tuoi Tre says raising the tax will help ease the budget constraint now, but in the longer term, its negative impacts would be damaging. The paper says that as 70% of the State budget is now being used on regular spending including the State payroll and other not-for-profit activities, if the ministry can cut just 2% of such spending, some VND15 trillion could be saved.

If resorting to the easy-going approach of raising tax, says Tuoi Tre, “a time might come when the Finance Ministry skips its mandate to cut expenditures and broaden the tax base.” If such a scenario should occur, that would be a stressful environment for the economy and the people.